Nebraska lawmakers authorize state tax study

LINCOLN, Neb. (AP) -- Lawmakers gave the go-ahead on Thursday for a study of Nebraska's tax climate, with expectations that they'll reform the system and warnings that not everyone will see their taxes cut.

Senators voted to create a 15-member committee that will focus on property, income and sales taxes, and report its findings back to the Legislature.

The committee will look to create tax policy that's fair, simple and stable, while helping Nebraska compete with other states. It will also explore how to keep the system adequate to pay for essential state services, said Sen. Galen Hadley of Kearney, chairman of the Legislature's Revenue Committee.

But Hadley — who will lead the tax modernization committee — cautioned that the findings may not mean across-the-board tax cuts. He said lawmakers may need to show the political courage to enact tax increases in some areas so they can lower others.

Such a battle unfolded earlier this year, when Republican Gov. Dave Heineman released a proposal to eliminate or reduce the state's income tax. In exchange, Heineman recommended that lawmakers abolish millions of dollars' worth of state sales tax exemptions. The plan drew a torrent of criticism from farm groups, manufacturers, nonprofits and others who each stood to lose a sales tax break, and Heineman withdrew the proposals in favor of the study.

"This study is not going to come in and have sweeping reductions in all our taxes," Hadley said. ". . . This study is to determine is their equity in our tax system? Have things changed that we need to look at?"

Lawmakers have reviewed the state's tax policy at least three times since a much-touted overhaul of the system in 1967, Hadley said. He said lawmakers will use those studies as a starting point as they develop a plan.

Hadley said lawmakers will examine whether the state should allow sales tax exemptions for services. Hadley said a serviceman recently visited his condo, and left him with a bill of a $97.25 — $95 for labor that wasn't taxed, and $2 for parts that were.

"What's the rationale for that? Well, we're going to look at that," he said. "We're going to look and see how property taxes, sales taxes and income taxes work together. Does that mean every single person in Nebraska is going to have their tax burden lowered? No."

The tax modernization committee will include all members of the Revenue Committee, leaders of five other legislative panels, and two at-large members who will likely be freshman senators.

Sen. Russ Karpisek of Wilber said lawmakers will need to keep an open mind to tax changes that could prove difficult to pass. Karpisek said he wasn't concerned about Nebraska's standing in tax rankings created by outside groups. Heineman and other tax cut supporters have previously pointed to Nebraska's mid-level rankings by the Tax Foundation, a Washington, D.C.-based think tank.

"We need to do what's best for the taxpayers of Nebraska, not to what it looks like for some Chinese company to come in and not pay taxes here," Karpisek said.